TPG profit drops below AU$400m ahead of Vodafone merger

TPG lost momentum in the consumer space due to the NBN, while its Vodafone fibre contract helped it maintain corporate revenues.

TPG has reported its financial results for FY18, revealing net profit down by 4.3 percent, from AU$414 million to AU$397 million, while revenue remained stagnant at almost AU$2.5 billion for the year.

Earnings before interest, tax, depreciation, and amortisation (EBITDA) dropped by 5.6 percent from AU$891 million to AU$841 million, with net debt of AU$1.27 billion as of July 31.

Revenue across its Consumer segment was up slightly to AU$1.74 billion -- AU$1.4 billion from broadband, AU$115 million from fixed voice, and AU$112 million from mobile -- with the telco's slowing consumer growth blamed on the National Broadband Network (NBN).

TPG's Corporate business made AU$754 million in revenue -- AU$563 million from data/internet, AU$130 million from voice, and AU$61 million from legacy iiNet -- up from AU$743 million a year ago, which it said was driven by strong data and internet sales and increased revenue from its Vodafone fibre contract.

As of July 31, TPG reported having 861,000 NBN customers after adding 300,000 during the financial year; 50,000 fibre-to-the-building (FttB) customers, 840,000 on-net ADSL customers, 100,000 off-net ADSL customers, and 80,000 other customers.

Average revenue per user (ARPU) across NBN customers is now AU$68.10 per month, down from AU$68.80 six months ago. APRU for FttB customers was AU$57.60, down from AU$58.30.

Across its mobile virtual network operator (MVNO) operations, for which it currently wholesales the Vodafone network, TPG had 422,000 by the end of July, down from 475,000 a year ago but up from 421,000 a quarter ago, noting "positive momentum re-established in 4Q18".

In an update of its mobile networks, TPG said its Australian small cell site rollout is continuing.

"TPG's small cell network would be complementary to VHA's mobile network, bringing greater strength to the combined group in densely populated areas through increased coverage and capacity," it said.

Its Singapore mobile network, meanwhile, remains on track to provide outdoor coverage to Singapore by the end of 2018.

"Production network already covering in excess of 90 percent of outdoor areas," TPG said, adding that it has seen "strong initial testing results".

On its proposed merger with Vodafone Australia, TPG said its application for Australian Competition and Consumer Commission (ACCC) informal clearance has been lodged, with a provisional timeline of 12 weeks; required notification to the United States Federal Communications Commission (FCC) has been given; and its Committee on Foreign Investment in the United States (CFIUS) application is "well advanced and will be lodged shortly".

Formal notification to Singapore's Info-communications Media Development Authority (IMDA) has also been lodged.

TPG CEO David Teoh had last month said a merged entity combining his company with Vodafone Hutchison Australia would be "very aggressive", with the new telco to possibly provide better pricing on bundled fixed and mobile offers than its previously announced AU$9.99 a month plans.

"With the merger of the two companies, I think we are going to be a leading challenger, and we are going to be very aggressive; we are going to bring value to the consumer," Teoh said.

"We have put a lot of money in the spectrum and in the planning on our start to roll out a very dense mobile network."

TPG and Vodafone Australia had in August announced that they would proceed with their merger -- after confirming a week earlier that they had entered discussions -- to form a telecommunications giant that they say will have an enterprise value of around AU$15 billion.

The new TPG will see Vodafone Australia CEO Inaki Berroeta serve as CEO and Teoh as chair, and will produce revenue of AU$6 billion, EBITDA of AU$1.8 billion, and have an operating free cash flow of AU$900 million, the companies claimed.

It will be owned 50.1 percent by Vodafone Australia shareholders and 49.9 percent by TPG shareholders, and expects to hold 20 percent of the Australian mobile market and 22 percent of the fixed-line broadband market upon merging.

"The merger will create a more effective challenger to Telstra and Optus, with an integrated fixed and mobile offering and a pro forma enterprise value of approximately AU$15 billion," the companies said.

The carriers are also forming a joint venture ahead of the upcoming 3.6GHz spectrum auction to join forces in bidding for 5G spectrum holdings, which will proceed whether the merger is approved or not.

Following the merger, Vodafone Australia should have a net debt of around AU$1.94 billion plus a spectrum payment of AU$80 million on January 31, while TPG will have a net debt of around AU$1.67 billion plus a spectrum payment of AU$352 million on January 31, with Berroeta calling the merged entity "a more sustainable company".

The merger is expected to complete next year, and is dependent on shareholder and regulatory approvals.

TPG's Singapore operations will be spun off into a separate company, with the telco set to launch Singapore's fourth mobile network by the end of 2018.

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